Mt. Pleasant Bank & Trust Co., Matter of
| Decision Date | 15 June 1988 |
| Docket Number | No. 87-137,87-137 |
| Citation | 426 N.W.2d 126 |
| Parties | 6 UCC Rep.Serv.2d 533 In the Matter of the Receivership of MT. PLEASANT BANK & TRUST COMPANY, Mount Pleasant, Iowa. FEDERAL DEPOSIT INSURANCE CORPORATION, As Receiver of the Mt. Pleasant Bank & Trust Company, Mount Pleasant, Iowa, Appellee, v. MOUNT PLEASANT PROFESSIONAL BUILDING; Don Boshart; Eldora Boshart; Eugene Barnes; Beulah Barnes; Home Furniture of Mt. Pleasant Corporation; Kenneth Tolander-Trustee; Richard Lane, Executor Juanita Lane Estate; Edwin Menke; Mary Lou Menke; Enterprise Design, Inc.; David Roth; Dorothy Roth; Florence Jennings; A. Leroy Jennings; R. Gaye Richenberger; Lawrence R. Walker; Lawrence E. Walker; Kelly C. Walker; Mt. Pleasant Utilities; Henry County Association for Retarded Citizens; Industrial Training Center; Donald Kiesey; Mary Kiesey; Richard H. Goodwin; Henry County, Iowa; Mt. Pleasant Community Theater Association; William O. Anderson; Esther I. Anderson; M & H Services, Ltd.; Hassenfritz Farms, Inc.; Walter Miller; Wanda Miller; and Messer Fertilizer, Inc., Appellants. United Central Bank of Des Moines, N.A., now known as First Interstate Bank of Des Moines, N.A., Appellee. |
| Court | Iowa Supreme Court |
Michael C. Vance, and David L. McCoid, Mt. Pleasant, for appellants.
Michael Noyes of Rehling, Lindburg & Gosma, Davenport, for appellee Federal Deposit Ins. Corp.
Ross H. Sidney, Robert C. Thomson, and Patrick J. McNulty of Grefe & Sidney, Des Moines, for appellee United Central Bank of Des Moines, N.A., n/k/a First Interstate Bank of Des Moines, N.A.
Considered by McGIVERIN, C.J., and LARSON, CARTER, LAVORATO, and ANDREASEN, JJ.
The appellants in this declaratory judgment action are the owners of outstanding repurchase agreements bought from the now-insolvent Mt. Pleasant Bank & Trust Company (MPB). Among other things, they contend the district court erred by interpreting the agreements to preclude perfection of their security interests in the federal securities being used as collateral. As a result of the court's interpretation, the appellants' security interests were found to be unperfected, thus making the appellants only general creditors of MPB upon its insolvency. Because we believe the district court erroneously interpreted the agreements, we reverse and remand with directions to the district court.
Prior to its closing, MPB sold repurchase agreements to the appellants. Under these agreements MPB was unconditionally obligated to pay the purchaser on the repurchase date the amount of the principal plus interest. 1
To secure MPB's performance, the agreements granted the purchaser a security interest in federal securities owned by MPB. These securities were bought and held for MPB by a correspondent bank, the United Central Bank of Des Moines, N.A. (UCB). 2
Each repurchase agreement was composed of a certificate, a disclosure addendum, and a security agreement. The addendum contained many of the repurchase agreement's terms. It provided that the purchaser was the equitable and beneficial owner of the collateral security until repurchased by MPB. UCB was named as the holder "in trust" of the security.
The certificate and addendum further provided that the "[p]urchaser's interest in the underlying federal security is not perfected and that in the event of insolvency, the customer may only be able to look to the general assets of the bank and not to the underlying federal security." (Emphasis added.) The addendum also stated that the "obligation of the named bank is not guaranteed by the United States Government." In addition, as described in the certificate, a purchaser's principal was not considered a deposit and was therefore not insured by the Federal Deposit Insurance Corporation (FDIC).
On August 6, 1982, the Iowa superintendent of banking ordered MPB to cease business. See Iowa Code §§ 524.224, 524.226 (1981). The FDIC was subsequently appointed to be the receiver, see id. at §§ 524.226, 524.1310, 524.1313, and on August 8 it sold certain assets of MPB, including the securities used as collateral for the repurchase agreements, to the Hawkeye Bank & Trust Company.
This declaratory judgment action was then brought by the FDIC to determine whether the appellants had perfected security interests in the federal securities and should therefore be treated as priority creditors under Iowa Code section 524.1312(2). The appellants and UCB were named as respondents.
In addition, the appellants brought a cross-claim against UCB, contending that it had violated its duties to act as a trustee for their interests and to exercise reasonable care in giving advice to MPB about protecting those interests. UCB also cross-claimed against the FDIC as successor of MPB, arguing that UCB's liability under the other cross-claim arose from MPB's negligence.
By agreement of the parties the case, including the cross-claims, was tried to the court as a law action.
At trial the appellants introduced parol evidence, without objection, in support of their argument that MPB representatives had characterized the security interests as perfected despite language to the contrary in the agreements themselves. Among this evidence was the stipulated testimony of the appellants:
1. At the time [the appellants] purchased their repurchase agreements from MPB, MPB made written and oral representations to the [appellants] which the [appellants] believed and relied upon, and thereafter they purchased their respective repurchase agreements.
2. That among these representations were the following:
(a) that the repos [i.e., repurchase agreements] were not insured by the FDIC;
(b) that the repos were safe investments because the repayment of the repos was guaranteed by the U.S. government/government agency securities or bonds specified as collateral in each repo agreement;
(c) [that] in some cases the [appellants] understood they actually owned a partial interest in said bonds ...;
(d) that the repo owners understood the representations meant that the only way the repo owner could lose was if the government of the United States failed and the bonds became worthless as a result.
Evidence was also introduced to show that the MPB president, Donald F. Carmody, had taken steps to specify that the securities were pledged as collateral under the repurchase agreements. After consulting MPB's attorney, Carmody spoke to a UCB employee who told him that the securities could be marked as collateral under UCB's standard procedure. Upon UCB's request Carmody sent, several weeks before MPB went into receivership, a letter that said, in part: "We ask that you mark your records showing that the securities are pledged as security and that you not release these securities until the repurchases described have been repaid." UCB then marked the receipts for the securities with the legend "Pledged to: Consumer Repo."
The court concluded the language "purchaser's interest in the underlying federal security is not perfected" meant the parties intended that the appellants' security interests would never be perfected. Because of this interpretation, the court refused to consider the appellants' stipulated testimony and Carmody's communication with UCB. According to the court,
The court concluded the appellants had failed to show perfected security interests and were therefore only general creditors of MPB.
The appellants now argue that the court erred in its interpretation of the repurchase agreements and in not considering the extrinsic evidence described above. This evidence, the appellants maintain, shows that the parties to the repurchase agreements intended the security interests to be perfected. The appellants also argue that UCB, which had the federal securities in its possession, violated its duties to act as a trustee for the appellants' interests and to exercise reasonable care in giving advice to MPB about protecting those interests.
The FDIC, an appellee here, argues that the district court properly interpreted the repurchase agreements and properly excluded the extrinsic evidence from consideration. UCB, the other appellee, argues the court correctly found that UCB was not negligent and owed no duty to the appellants. Before considering these issues, we must first resolve the parties' disagreement over our scope of review.
The appellants contend our review is de novo because the case was filed and tried in equity. Although this is a declaratory judgment action under Iowa Rule of Civil Procedure 267, we review it as any other judgment. Mead v. Iowa State Bd. of Parole, 331 N.W.2d 102, 103 (Iowa 1983). Our scope of review is governed by how the case was tried in the district court. Halsey v. Coca-Cola Bottling Co. of Mid-America, Inc., 410 N.W.2d 250, 252 (Iowa 1987).
In this case the district court's pretrial conference order noted that "[a]ll parties to this proceeding agree that this is a law action." No objection was made to this order. The appellants also made a demand for a jury trial, belying their claim that this case was an equity action. And at trial the court ruled on objections as they were made, which is "the hallmark of a law trial, not an equitable proceeding." Sille v. Shaffer, 297 N.W.2d 379, 381 (Iowa 1980). We agree with the FDIC that our review is for correcting errors of law. See Iowa R.App.P. 4.
In a law action the district court's findings of fact have the effect of a special verdict and are binding on us if supported by substantial evidence. Kendall/Hunt Publishing Co. v. Rowe, 424 N.W.2d 235, 238 (Iowa 1988). We are not bound, however, by the district court's application of legal principles or its conclusions of law. State ex rel....
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